Income Taxes

12 Months Ended

Oct. 31, 2019

On December 22, 2017, during our fiscal 2018, the Tax Cuts and Jobs Act of 2017 ("TCJA") was enacted. Changes as a result of the TCJA that either affected the Company during fiscal 2018 or will affect future periods include, but are not limited to, a reduction of the corporate income tax rate from 35.0% to 21.0%, bonus depreciation provisions that allow entities to fully expense qualified property during the year of purchase, the elimination of the domestic production activities deduction beginning in our fiscal 2019, the allowance of a deduction for foreign-derived intangible income, changes to Internal Revenue Code ("IRC") Section 162 regarding the deductibility of excessive employee remuneration for certain employees, and the elimination of net operating loss ("NOL") carryback provisions. Section 15 of the IRC stipulates that our fiscal 2018 was subject to a blended statutory tax rate of 23.3%, which was based on a calculation of the number of days during fiscal 2018 that were subject to a 35.0% statutory rate and the number of days during fiscal 2018 that were subject to a 21.0% statutory rate. Fiscal 2019 was subject to a 21.0% statutory rate for the entire year, and fiscal 2017 was subject to a 35.0% statutory rate for the entire year.

Our financial statements for fiscal 2018 were materially affected by the changes enacted by the TCJA. U.S. GAAP requires that the effects from changes in tax laws be recognized in the period in which the new law is enacted, which for the TCJA was our first quarter of fiscal 2018. Since the TCJA was enacted on December 22, 2017, which is during our first fiscal quarter, we were required to remeasure our deferred tax assets and liabilities using the enacted tax rate expected to apply when the temporary differences from which the deferred taxes arose were expected to be settled. This revaluation of our deferred taxes resulted in a $37.5 million discrete income tax benefit and a corresponding reduction to net deferred tax liabilities during the first quarter of fiscal 2018.

Our effective tax rates for fiscal 2019, 2018 and 2017 were 16.5%, (101.0)% and 34.1%, respectively. During the periods presented, income tax expense (benefit) consisted of the following:


	Years Ended October 31,
	2019		2018		2017
	(In thousands)
Current expense (benefit):
Federal	$	(735)	$	(600)	$	117,611
State	(51)		(1,169)		11,024
	(786)		(1,769)		128,635
Deferred expense (benefit):
Federal	13,966		(28,845)		15,452
State	2,753		2,146		1,804
Change in valuation allowance	(5,380)		(2,406)		(1,106)
	11,339		(29,105)		16,150
Income tax expense (benefit)	$	10,553	$	(30,874)	$	144,785

Significant components of the Company’s deferred tax assets and liabilities are outlined below.


	October 31,
	2019		2018
	(In thousands)
Deferred tax liabilities:
Property, plant and equipment	$	148,505	$	88,351
Prepaid and other assets	1,911		1,751
Total deferred tax liabilities	150,416		90,102
Deferred tax assets:
Accrued expenses and accounts receivable	8,172		7,814
Inventory	1,155		2,862
Compensation on restricted stock	7,528		8,280
State income tax credits	9,333		12,235
Other	1,272		654
Valuation allowance	(5,637)		(11,017)
Net operating loss	54,461		6,481
Total deferred tax assets	76,284		27,309
Net deferred tax liabilities	$	74,132	$	62,793

The increase in the Company's deferred tax liability is primarily attributable to the Company's decision to take bonus depreciation on qualifying assets placed in service during fiscal 2019.

Included in the deferred tax assets at October 31, 2019, is a federal NOL carryforward of $255.4 million. All of the NOL carryforward was incurred subsequent to the enactment of the TCJA and therefore has an indefinite carryforward period. The Company has significant deferred tax liabilities, primarily related to property, plant and equipment, which are expected to reverse and allow for the full utilization of the NOL carryforward. As such, the Company has not recorded a valuation allowance related to the NOL carryforward. Also included in the deferred tax assets are North Carolina Investing in Business Property Credit and North Carolina Jobs Credits totaling $4.9 million, as well as Georgia Job Tax Credits totaling $2.6 million. The North Carolina Investing in Business Property Credit provides a 7% investment tax credit for property located in a North Carolina development area, the North Carolina Creating Jobs Credit provides a tax credit for increased employment in North Carolina, and the Georgia Job Tax Credit provides a tax credit for creation and retention of qualifying jobs in Georgia. It is management’s opinion that the majority of the North Carolina and Georgia income tax credits will not be utilized before they expire, and a $5.6 million valuation allowance has been recorded as of October 31, 2019. The North Carolina credits began to expire during fiscal 2018, and the remaining credits expire between fiscal years 2020 and 2023.

At the end of each reporting period, the Company evaluates all available information at that time to determine if it is more likely than not that some or all of these credits will be utilized. As of October 31, 2019, 2018, and 2017, the Company determined that a total of $1.8 million, $0.7 million, and $0.6 million, respectively, would be recovered. Accordingly, those amounts were released from the valuation allowance and benefited deferred tax expense in the respective periods.

The differences between the consolidated effective income tax rate and the federal statutory rate effective during the applicable year presented are as follows:


	Years Ended October 31,
	2019		2018		2017
	(In thousands)
Income taxes at statutory rate	$	13,408	$	7,132	$	148,585
Discrete benefit resulting from TCJA	—		(37,505)		—
State income taxes	1,189		1,014		9,038
State income tax credits	(2,139)		(804)		(606)
Expiration of state income tax credits	4,121		4,117		642
Federal income tax credits	(474)		(460)		(390)
Federal manufacturers deduction	—		—		(11,527)
Excess tax benefits	(1,388)		(1,638)		(3,345)
Nondeductible expenses	1,786		1,890		3,506
Change in valuation allowance	(5,380)		(5,297)		(1,106)
Other	(570)		677		(12)
Income tax expense (benefit)	$	10,553	$	(30,874)	$	144,785